Restaurants warn of weak first quarter, but say sales will pick up later this year

In like a lion, out like a lamb.

That’s how restaurant executives envision 2025 after a rough start to the year, largely caused by freezing temperatures, wildfires and consumer caution.

Many restaurant chains, like Restaurant Brands’ Burger King and Popeyes, said sales improved in the fourth quarter as value offerings brought back diners who had been cooking at home instead. Even McDonald’s domestic traffic grew, despite a 1.4% decline in U.S. same-store sales.

But the trend reversed in January.

“We’ve started the year facing some overall industry traffic headwinds, exacerbated by significant weather events across the country,” Wendy’s CFO Kenneth Cook said on the company’s conference call on Thursday.

Fast-food net sales rose 3.4% in January, compared with the year-ago period, but the growth was down slightly from December’s spike of 4.9%, according to restaurant market research firm Revenue Management Solutions. Traffic for breakfast and lunch both declined during the month.

“I think consumers are still wary,” Subway U.S. President Doug Fry told CNBC. “I think they’re waiting to see how the economy goes, but they’re also not willing to sacrifice that quality and portion size and the quantity of what they’re eating. They want to find that best value for the dollar they spend.”

Traffic and sales growth are expected to pick up as the year progresses, in part due to the easy comparisons to last year’s declines. Industry traffic was negative every month except November, and sales slid over the summer, which is typically a high point for restaurants.

“We expect year-over-year comparisons to ease into the summer months,” Restaurant Brands CFO Sami Siddiqui said.

January always brings colder temperatures, but this year it also included wildfires in Los Angeles and new uncertainty after President Donald Trump’s inauguration.

Chipotle Mexican Grill estimates that the wildfires hurt its January same-store traffic growth by 400 basis points, or 4%.

Overall, traffic to Chipotle restaurants open at least a year fell 2% in January compared with a year ago, hurt by the weather and New Year’s Day falling on a Wednesday. Chipotle CFO Adam Rymer told analysts that the company believes its first-quarter same-store sales will be roughly flat.

Looking to the second quarter, Chipotle also expects weaker same-store sales as it faces comparisons to last year’s popular promotions. While the company predicts stronger sales in the second half of the year, its weak forecast for the coming months led to a 4% decline in the stock.

For now, restaurants aren’t predicting any major impact on their businesses from the Trump administration’s trade war. Chipotle, which imports roughly half of its avocado supply from Mexico, downplayed concerns about how currently suspended tariffs of 25% would raise food costs. The company, along with Wendy’s and McDonald’s, did not include any impact from the new 10% duties on China and potential levies on Mexico and Canada in its outlook.

But consumers are worrying about tariffs and the potential pressure on their wallets.

U.S. consumer sentiment hit a seven-month low in February as households fear rising prices over the next year. Already, inflation in January was hotter than expected, with away-from-home food prices rising 3.4% over the last 12 months, according to the Department of Labor.

For the chains plotting a comeback, sales are expected to improve later this year.

For example, McDonald’s is still waiting for its sales to rebound fully after an E. coli outbreak linked to its Quarter Pounder burgers began weighing on sales in mid-October. The fast-food giant is predicting that demand will recover by the beginning of the second quarter, McDonald’s CEO Chris Kempczinski said on the company’s conference call on Monday.

Plus, if overall consumer health strengthens, McDonald’s predicts even more sales gains.

“Should the underlying environment improve beyond our initial expectations, especially with respect to lower-income consumers, we would expect to benefit disproportionately relative to our competitors,” McDonald’s CFO Ian Borden said.

Then there’s Starbucks, which will need a much longer timeline to turn around its business. The coffee chain’s same-store sales have fallen for four straight quarters as consumers opt to buy their caffeinated drinks elsewhere.

Starbucks suspended its outlook for fiscal 2025, so it didn’t provide any insight into its expected sales for the year. However, Starbucks CFO Rachel Ruggeri told investors that the company’s earnings are expected to improve in the second half of its fiscal year.

“[Earnings per share] is expected to be the lowest in [the fiscal second quarter] on an absolute basis due to seasonality, the organization restructuring I just spoke about and elevated investments, with year-over-year pressure also intensifying in the quarter,” she said in late January. “EPS is then expected to improve in the latter half of the fiscal year 2025, both sequentially and year-over-year.”